Question 1
Compute the price of an American call option with strikeK=110and maturityT=.25years.
Question 2
Compute the price of an American put option with strikeK=110and maturityT=.25years.
Question 3
Is it ever optimal to early exercise the put option of Question 2?
Question 4
If your answer to Question 3 is "Yes", when is the earliest period at which itmightbe optimal to early exercise? (If your answer to Question 3 is "No", then you should submit an answer of 15 since exercising after 15 periods is not an early exercise.)
Question 5
Do the call and put option prices of Questions 1 and 2 satisfy put-call parity?
Question 6
Compute the fair value of an American call option with strikeK=110and maturityn=10periods where the option is written on a futures contract that expires after 15 periods. The futures contract is on the same underlying security of the previous questions.
Question 7
What is the earliest time period in which you might want to exercise the American futures option of Question 6?
Question 8
Compute the fair value of achooseroption which expires aftern=10periods. At expiration the owner of the chooser gets to choose (at no cost) a European call option or a European put option. The call and put each have strikeK=100and they mature 5 periods later, i.e. atn=15.